The government's financial support for post offices may be jeopardised if the network fails to win a tender to run the card account through which millions are paid benefits, MPs were warned yesterday.

Brussels has approved a government subsidy of £150m a year to enable Royal Mail to run a network of 11,500 post offices by keeping loss-making branches open. But Post Office Ltd's managing director, Alan Cook, said winning the card account was crucial in meeting state aid rules.

The government has put the card account out to tender from 2011 and Cook said: "The grounds of approval (from Brussels) are on the back of having the card account."

The loss of other government work and a decline in the number of people using the card account had posed problems for the network, Cook told the all-party business and enterprise committee. If it lost the tender, the reduction in the level of services it would be providing would make it hard for the government to secure renewal of the social network payment, he said.

Post Office Ltd is closing 2,500 branches as part of its plans to curb heavy losses made by the network. Government funding will enable it to retain 11,500.

Cook told the committee the company would oppose any plans to shrink the network further but added that Post Office Ltd had to work within the limits of the funding provided by the government.

He revealed 100 local authorities had expressed interest in an initiative being pioneered by Essex County Council to take on post offices being closed under the network change programme.